BANK OF CHINA (MALAYSIA) BERHAD (Incorporated in Malaysia)

Transcription

1 STATUTORY FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011

2 REPORTS AND FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 CONTENTS PAGE DIRECTORS REPORT 1-20 STATEMENTS OF FINANCIAL POSITION 21 STATEMENTS OF COMPREHENSIVE INCOME 22 STATEMENTS OF CHANGES IN EQUITY STATEMENTS OF CASH FLOW SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES STATEMENT BY DIRECTORS 114 STATUTORY DECLARATION 114 INDEPENDENT AUDITORS REPORT

3 DIRECTORS' REPORT The Directors hereby submit their report together with the audited financial statements of the Group and the Bank for the financial year ended 31 December PRINCIPAL ACTIVITIES The principal activities of the Bank are commercial banking and related financial services. The principal activity of the subsidiary is that of providing Chinese visa application services. There were no significant changes in these activities during the financial year. FINANCIAL RESULTS Group RM 000 Bank RM 000 Profit before taxation 36,558 34,625 Taxation (9,009) (6,945) Net profit for the financial year 27,549 27,680 DIVIDENDS No dividends has been paid or declared by the Bank as at 31 December The Directors do not recommend any dividend in respect of the current financial year. CHANGES IN DEBT AND EQUITY SECURITIES There were no issuance and repayment of debt and equity securities, share buy-backs, share cancellations, shares held as treasury shares and resale of treasury shares for the period under review. RESERVES AND PROVISIONS All material transfers to or from reserves and provisions during the financial year are shown in the financial statements. 1

4 DIRECTORS' REPORT (CONTINUED) BAD AND DOUBTFUL DEBTS Before the financial statements of the Group and the Bank were made out, the Directors took reasonable steps to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts, and satisfied themselves that all known bad debts, if any, had been written-off and adequate allowance had been made for doubtful debts. At the date of this report, the Directors are not aware of any circumstances which would render the amounts written-off for bad debts or the amount of the allowance for doubtful debts in the financial statements of the Group and the Bank inadequate to any substantial extent. CURRENT ASSETS Before the financial statements of the Group and the Bank were made out, the Directors took reasonable steps to ensure that any current assets, other than debts, which were unlikely to realise in the ordinary course of business, their values as shown in the accounting records of the Group and the Bank had been written down to an amount which they might be expected so to realise. At the date of this report, the Directors are not aware of any circumstances which would render the values attributed to the current assets in the financial statements of the Group and the Bank misleading. VALUATION METHODS At the date of this report, the Directors are not aware of any circumstances which have arisen which render adherence to the existing methods of valuation of assets or liabilities of the Group and the Bank misleading or inappropriate. CONTINGENT AND OTHER LIABILITIES At the date of this report, there does not exist: (a) (b) any charge on the assets of the Group and the Bank which has arisen since the end of the financial year which secures the liabilities of any other person; or any contingent liability in respect of the Group and the Bank that has arisen since the end of the financial year other than in the ordinary course of banking business. No contingent or other liability of the Group and the Bank has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Group or the Bank to meet their obligations when they fall due. 2

5 DIRECTORS' REPORT (CONTINUED) CHANGE OF CIRCUMSTANCES At the date of this report, the Directors are not aware of any circumstances, not otherwise dealt with in this report or the financial statements of the Group and the Bank, which would render any amount stated in the financial statements misleading. ITEMS OF AN UNUSUAL NATURE The results of the operations of the Group and the Bank for the financial year were not, in the opinion of the Directors, substantially affected by any item, transaction or event of a material and unusual nature. There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors, to affect substantially the results of the operations of the Group and the Bank for the current financial year in which this report is made. SUBSEQUENT EVENTS There were no material events subsequent to the balance sheet date that requires disclosure or adjustments to the financial statements. DIRECTORS The Directors who have held office during the period since the date of the last report and at the date of this report are as follows: Zheng Jingbo Gao Xingmao Tan Siak Tee Datuk Ter Liang Yap Zheng Weiping (Appointed on 13 March 2012) Zhang Lianli (Resigned on 13 March 2012) Du Chaohua (Resigned on 26 April 2012) In accordance with Section 129 of the Companies Act, 1965, Mr Tan Siak Tee retires but being eligible, had offered himself for re-election. In accordance with Article 82 of the Bank s Articles of Association, Ms Zheng Weiping retires but being eligible, offers herself for re-election. In accordance with Article 76 of the Bank's Articles of Association, Mr Zheng Jingbo retires by rotation and being eligible, offered himself for re-election. 3

6 DIRECTORS' REPORT (CONTINUED) DIRECTORS' INTERESTS IN SHARES According to the Register of Directors' Shareholdings, none of the Directors in office at the end of the financial year held any interest in shares of the Bank and its related corporations. DIRECTORS' BENEFITS During and at the end of the financial year, no arrangements subsisted to which the Bank or its subsidiary is a party, being arrangements with the object or objects of enabling Directors of the Bank to acquire benefits by means of the acquisition of shares in, or debentures of the Bank or any other body corporate. During and at the end of the financial year, no Director of the Bank has received or become entitled to receive a benefit (other than the benefit included in the aggregate amount of emoluments received or due and receivable by Directors shown in the financial statements, or the fixed salary of a full time employee of the Bank) by reason of a contract made by the Bank or a related corporation with the Director or with a firm of which the Director is a member, or with a company in which the Director has a substantial financial interest except the Directors received remuneration from related corporations in their capacities as executives of those related corporations. HOLDING COMPANIES The holding company of the Bank is Bank of China Limited, whereas the ultimate holding company is Central Huijin Investment Ltd, both incorporated in China. BUSINESS REVIEW 2011 In 2011, the Group had channeled its effort in developing the Renminbi business in the Malaysian market. The Group had also focused on liability management and developed new credit facilities to expand its product range. BUSINESS OUTLOOK FOR 2012 In anticipation of global economic slowdown, the Bank will continue to focus its development strategies to grow the Renminbi business and other conventional commercial banking products in tandem with the Holding Company s development directions. The Bank is focusing on growing its assets base with prudence risk management. Emphasis will be put on the development of the Renminbi business products and liability management. RATINGS BY EXTERNAL RATING AGENCY The Bank is not rated by any external agency. 4

7 DIRECTORS' REPORT (CONTINUED) DIRECTORS' PROFILES Zheng Weiping Chairman, Non-Independent Non-Executive Director Mr Zheng Weiping, People s Republic of China citizen, aged 58, was appointed to the Board in Year 2012 as Chairman of the Bank, representing Bank of China Limited. She had completed her study in the International Finance in year 1986 in The People s University of China (Renmin University of China). Mdm. Zheng started her career as an officer of Bank of China, Head Office responsible for the non-trade foreign exchange rate and interest rate management. In the progress of the Bank s transformation from a specialist Foreign Exchange Bank into state-owned commercial Bank, she had actively participated in deposit related business development and Asset & Liability Management. She was promoted as the Manager/Deputy General Manager of Planning and Coordination Department in year 1986 and 1997 respectively in charge of Product Management Division which focuses on deposit management, Business impact analysis and market risk management. The department had undergone restructuring in year 1997 and she was assigned the role of Deputy General Manager of Asset and Liability Department, responsible for the business strategic planning, product management and market risk management. In addition, she also assumed the chief secretary role of Interest Rate Committee, The Association of Banks in China. Mdm. Zheng was transferred to Bank of China Ltd, Singapore Branch in 2004 as a Deputy General Manager to oversee Retail Banking, Treasury Department and all sub-branches in Singapore. Mdm. Zheng was appointed as the Director to the board of director of Bank of China Nominee (Pte) Ltd in Zheng Jingbo Non-Independent Executive Director/Chief Executive Officer Mr. Zheng Jingbo, People s Republic of China citizen, aged 54, was appointed to the Board in year 2007 as an Executive Director representing Bank of China Limited. He obtained his Masters in World Economy from East China University, Shanghai, China. Mr. Zheng joined Bank of China Limited in He has held several managerial positions during his tenure of employment involving in Corresponding Banking, International Settlement, Investment, Trust and Consultant business, Branch Management and Operations. 5

8 DIRECTORS' REPORT (CONTINUED) DIRECTORS' PROFILES (CONTINUED) Gao Xingmao Non-Independent Non-Executive Director Mr. Gao Xingmao, People s Republic of China citizen, aged 59, was appointed to the Board in year 2008 representing Bank of China Limited. He graduated from Beijing University in Mr. Gao joined Bank of China in 1978 working in the Credit Department. He was transferred to Bank of China Panama Representative Office in 1988 as Representative. He was promoted as Chief Representative in 1990 and General Manager of Bank of China Panama Branch in Mr. Gao was transferred to Bank of China Head Office in 1995 as Manager of Credit Department and Manager of Corporate Banking Department. Mr. Gao was appointed as Director to the Board of Directors of Bank of China in Russia in year Tan Siak Tee Independent Non-Executive Director Mr. Tan Siak Tee, Malaysian, aged 71, was appointed to the Board in year 2000 as an Independent Non-Executive Director of the Bank. No family relationship with any director and/or the shareholder of the Bank. He is the chairman of the Bank s Integrated Risk Management Committee and Credit Risk Management Committee and Audit Committee. Mr. Tan obtained his Bachelor of Commerce degree from University of New South Wales, Australia. He is an Associate of the Institute of Chartered Accountants of Australia and the Institute of Chartered Secretaries and Administrators. He is also a member of the Malaysian Institute of Certified Public Accountants. Mr. Tan started his career as an Auditor with Coopers and Lybrand, Sydney and later seconded to Coopers and Lybrand, Kuala Lumpur. He has extensive experience in banking industry. He was the Chief Internal Auditor for Malaysian operations in OCBC Bank and Chung Khiaw Bank for the period from 1969 to 1971 and 1971 to 1973 respectively. He joined Lee Wah Bank Limited in 1973 as Manager of Malaysia Central Office and was promoted to Director and Chief Executive Officer for Malaysian operations in He was made a Director and Chief Executive Officer in United Overseas Bank (M) Berhad ( UOB ) for the period from 1994 to 1997 after Lee Wah Bank Malaysian Operations was incorporated in Malaysia in After his retirement from UOB Group, he became the Non-Executive Director in Asia Commercial Finance Berhad from 1997 to He joined the Bank in April His other directorships in public companies are as follows: Independent Non-Executive Director of ACB Resources Berhad, a public limited liability company. 6

9 DIRECTORS' REPORT (CONTINUED) DIRECTORS' PROFILES (CONTINUED) Datuk Ter Leong Yap Independent Non-Executive Director Datuk Ter Leong Yap, Malaysian, aged 48, was appointed to the Board in year 2010 as an Independent Non-Executive Director of the Bank. No family relationship with any director and/or the shareholder of the Bank. He graduated from University of Malaya with a Bachelor degree in Mechanical Engineering. Datuk Ter is the Executive Chairman and founder of Sunsuria Group of Companies and Top-Mech Group of Companies. In 1997, Top-Mech was awarded Pioneer Status by the Malaysian Government for becoming the first manufacturer of hoist and lifting equipment in Malaysia. Datuk Ter is also actively involved in social work. Currently, he is the Deputy President of Chinese Chamber of Commerce and Industry of Kuala Lumpur and Selangor, Treasurer of The Association of Chinese Chambers of Commerce and Industry of Malaysia ( ACCCIM ), Chairman of Socio Economic Research of Committee of ACCCIM, Committee Member of United Overseas Committee of China s National and REHDA, Wilayah Persekutuan (KL) Branch. He is also the Malaysia s representative for Malaysia-Singapore Business Council as well as the Honorary President of Young Malaysians Movement Malaysia. In addition, he also sits in the Board of School Directors as Vice Chairman, Board of Directors of Hin Hua High School Klang, Director of Kuen Cheng High School Kuala Lumpur and Director of Pin Hwa High School Klang. He has been appointed as Director to the Board of Director of University Kebangsaan Malaysia. In 2002, Datuk Ter was conferred the AMN honour by the Yang Dipertuan Agong for his contributions to the society. In 2008, he was awarded the Top Best 50 Outstanding Malaysian Hokkien Award. In 2011, he was conferred the Panglima Jasa Negara (P.J.N), by His Majesty, Yang Di-Pertuan Agong Tuanku Mizan Zainal Abidin. 7

10 DIRECTORS' REPORT (CONTINUED) CORPORATE GOVERNANCE STATEMENT BOARD OF DIRECTORS Adherence to the highest standards of corporate governance continues to be the cornerstone of the Bank s corporate culture. Roles and Responsibilities of the Board of Directors The Board of Directors of the Bank plays a critical role in ensuring sound and prudent policies and practices of the Bank. The Board carries ultimate responsibility for the proper stewardship of the Bank, ensures maximisation of shareholder s value and safeguarding the stakeholders interests. It needs to oversee the affairs, establishing, amongst others, the corporate values, vision and strategy that will direct the activities of the Bank. It also provides effective check and balance mechanism in the overall management of the Bank. The major duties and responsibilities of the Board include: 1. Review and approve strategies, business plans and significant policies and monitor management s performance in implementing them; 2. Prescribes minimum standards and establishes policies on the management of credit risks and other key areas of the Bank s operations; 3. Regular oversight of the Bank s business operations and performance, and ensuring that the infrastructure, internal controls, and risk management processes are well in place to assess and manage business risks. The Board carries out various functions and responsibilities laid down by Bank Negara Malaysia ( BNM ) in the guidelines and directives issued from time to time. Board Meetings and Supply of Information to the Board Board meetings are held regularly, 6 times a year, whereby reports on the progress of the Bank s business operations and minutes of the meetings of Audit Committee and other committees set up by the Bank to oversee various risks undertaken are tabled for review by Members of the Board. The Board meetings are convened to review and approve the Bank s quarterly financial statements, deliberate on the performance of the Bank and to provide policy direction and guidance for the management. The agenda for every Board meeting, together with Management reports, proposal papers and supporting documents, are furnished to all the Members of the Board for their perusal well in advance of the Board meeting date, so that the Directors have ample time to review matters to be deliberated at the Board meeting and to facilitate informed decision making by the Directors. Minutes of Board meetings are circulated to all Directors for their perusal prior to confirmation of minutes at the following Board meeting. 8

11 DIRECTORS' REPORT (CONTINUED) CORPORATE GOVERNANCE STATEMENT (CONTINUED) BOARD OF DIRECTORS (CONTINUED) The Directors are regularly updated and advised by the Company Secretary on new statutory as well as regulatory requirements relating to the duties and responsibilities of Directors, including policy guidelines issued by BNM that concern the Bank or the discharge of their duties as Directors of a financial institution. Every member of the Board has ready and unrestricted access to the advice and services of the Company Secretary and the Directors have the liberty to seek external professional advice if so required by them. The attendance of the Board of Directors meetings held during 2011 is as follows: Composition of Board of Director Zhang Lianli, Chairman/ Non-Independent Non-Executive Director Number of Board Meetings Held Attended 6 1 Zheng Jingbo, Non-Independent Executive Director 6 6 Gao Xingmao, Non-Independent Non-Executive Director 6 6 Du Chaohua, Non-Independent Non-Executive Director 6 6 Tan Siak Tee, Independent Non-Executive Director 6 6 Datuk Ter Leong Yap, Independent Non-Executive Director 6 6 Effectiveness of the Board of Directors 1. Division of Responsibilities Between the Chairman and Chief Executive Officer The roles of the Chairman and the Chief Executive Officer ( CEO ) are distinct and separate, with each having his respective scope of duties and responsibilities, to ensure a proper balance of power and authority. The Chairman of the Board is a Non-Executive Director and his main responsibility is to lead and manage the work of the Board in order to ensure that it operates effectively and fully discharges its legal and regulatory responsibilities. Together with the rest of the Non- Executive and Independent Directors, he leads the discussions on the strategies and policies recommended by the Management. The responsibilities for the day-to-day management of the Bank rest with the CEO. He is accountable for leading the management team, implementing the policies or decisions approved by the Board. He is also responsible for charting the future direction of the Bank for the Board s consideration and approval. The Board considers and approves a set of expectations on the CEO. This subsequently acts as a yardstick against which his performance will be measured, evaluated and rewarded. 9

12 DIRECTORS' REPORT (CONTINUED) CORPORATE GOVERNANCE STATEMENT (CONTINUED) BOARD OF DIRECTORS (CONTINUED) 2. Composition of the Board The Board currently comprises personnel with differing expertise and of high standing in the society. The Board comprises 6 members, of whom one is Executive Director, and 2 out of 5 Non-Executive Directors are independent as defined under BNM Guidelines on Corporate Governance for Licensed Institutions ( BNM/GP1 ). There is effective check and balance on the Board, with five-sixth of the Board Members being Non-Executive Directors and the Independent Directors consisted of one-third of the Board members. 3. Appointments to the Board The proposed appointment of new member(s) of the Board or the re-election of Directors at the General Meeting of the Bank, are assessed and recommended by the Board and approved by the holding company before the application on the proposed appointment is submitted to BNM for approval. The selection criteria with regard to the desired candidate encompass the combination of competencies, the minimum qualifications specified by regulatory authorities and relevant experience. The Board of Directors has a broad range of skills and credentials. Each brings a high degree of independent judgement and knowledge to the Board s discussions. They are individuals of high calibre and social standing with backgrounds in banking, law, accounting and economics. One-third of the Directors for the time being must retire at each Annual General Meeting ( AGM ) and if eligible, may offer themselves for re-election. The profiles of the members of the Board are set out on pages 5 to 7 of the Report. 4. Directors Performance and Remuneration The holding company will carry out assessment on the performance of the Board annually. The members of the Board will be assessed based on the specific criteria set as well as the performance assessment of the Bank as a whole. At the same, an annual assessment of individual directors, Board as a whole and Board Committees will be carried out by the Bank. The Board will recommend on the policies and framework in relation to rewards and benefits of Directors to the holding company for approval. The Independent Directors who had served for the financial year are paid annual directors fee with the shareholder s approval at the AGM. The appointment, compensation and benefits of the CEO will be assessed by the holding company and the Board based on the qualification, experience and achievement of targets set. 10

13 DIRECTORS' REPORT (CONTINUED) CORPORATE GOVERNANCE STATEMENT (CONTINUED) BOARD OF DIRECTORS (CONTINUED) 5. Induction and Training The newly appointed Directors will receive in-house orientation and education programmes to assist them to familiarise with the industry and the Bank within 3 months of the appointment. The programmes should cover at a minimum the nature of business, the corporate strategy of the Bank, responsibilities and duties of the Board as a whole, an overview of the risks of the businesses, the risk management strategy of the Bank, legal requirements and financial overview of the Bank. The Bank and the Holding Company would ensure that all Directors receive continuous training in order to keep abreast with latest developments in the industry, particularly on relevant new laws, regulations and the changing risk factors from time to time. INFORMATION ON COMMITTEES OF THE BANK The Board has established Board Committees as well as various Management Committees to assist the Board in the running of the Bank. The Board Committee and Management Committees in the Bank are as follows: Board Committees Audit Committee Board Risk Committee Board Nominating Committee Board Remuneration Committee Management Committees Risk Management and Internal Control Committee Business Development Committee Credit and Loan Committee Information technology Steering Committee Bulk Purchase management procurement committee 11

14 DIRECTORS' REPORT (CONTINUED) CORPORATE GOVERNANCE STATEMENT (CONTINUED) INFORMATION ON COMMITTEES OF THE BANK (CONTINUED) The Bank has obtained BNM s approval to dispense with the establishment of Nominating, Remuneration and Risk Management Committees. Accordingly, the Board will undertake the responsibility for the roles and responsibilities expected of each of the Board Committees as follows: 1. Audit Committee The Board has approved the establishment of Audit Committee and its terms of reference. (a) Membership and Attendance The Audit Committee ( AC ) comprises the following members and details of attendance of each member at the AC meetings held during 2011 are as follows: Composition of Audit Committee Tan Siak Tee Chairman/Independent Non-Executive Director Du Chaohua Member/Non-Independent Non-Executive Director Datuk Ter Leong Yap Member/Independent Non-Executive Director Number of AC Meetings Held Attended (b) Composition and Terms of Reference The AC shall comprise only Non-Executive Directors with at least (3) three members but not more than (5) five members, of which the majority should be Independent Directors. At least one member should have accounting expertise or experience in the field of finance. The AC members shall elect a Chairman among them who is an Independent Non-Executive Director. A minimum of (4) four meetings per year are planned although meetings may be called at any time at the Chairman s discretion. Meeting includes by way of physical presence and telephone/video conferencing. The quorum shall be not less than (2) two. 12

15 DIRECTORS' REPORT (CONTINUED) CORPORATE GOVERNANCE STATEMENT (CONTINUED) INFORMATION ON COMMITTEES OF THE BANK (CONTINUED) 1. Audit Committee (continued) (c) Roles and Responsibilities The AC is given full authority to investigate any matter within its terms of reference, full access to and co-operation by management and full discretion to invite any director or executive director to attend its meetings, and reasonable resources to enable it to discharge its functions properly. The AC should have full and unrestricted access to information and be able to obtain independent professional advice. (d) Key Internal Control Processes The key processes that have been established in reviewing the adequacy and integrity of the system of internal controls include the following: (i) (ii) The AC reviews internal control issues identified by the Internal Audit and Compliance Department, the external auditors, regulatory authorities, the auditors from the holding company and the management, and evaluates the adequacy and effectiveness of the internal control systems. The minutes of the AC meetings are tabled to the Board of the Bank on a periodic basis; The Internal Audit and Compliance Department of the Bank monitors compliance with policies and procedures and the effectiveness of the internal control systems and highlights significant findings in respect of any non-compliance. Audits are carried out on all departments except the Information Technology Department where the audit would be covered by the auditors from the holding company. The frequency of the audit is determined by the level of risk assessed, to provide an independent and objective report on operational and management activities of the departments. The annual audit plan is reviewed and approved by the AC and the findings of the audits are submitted to the AC for review at their periodic meetings. 13

16 DIRECTORS' REPORT (CONTINUED) CORPORATE GOVERNANCE STATEMENT (CONTINUED) INFORMATION ON COMMITTEES OF THE BANK (CONTINUED) 2. Board Risk Committee The Board has approved the establishment of Board Risk Committee and its terms of reference. (a) Membership and Attendance The Board Risk Committee ( BRC ) comprises the following members and details of attendance of each member at the BRC meetings held during 2011 are as follows: Composition of Board Risk Committee Tan Siak Tee Chairman/Independent Non-Executive Director Du Chaohua Member/Non-Independent Non-Executive Director Gao Xingmao Member/Non-Independent Non-Executive Director Datuk Ter Leong Yap Member/Independent Non-Executive Director Number of Meetings Held Attended (b) Composition and Terms of Reference The BRC shall comprise only non-executive directors with at least 3 members. The committee shall be chaired by an independent director. The committee shall hold regular meetings, at least once every quarter and should report regularly to the Board. The quorum shall be three (3) persons. (c) Objective The objective of BRC is to oversee the senior s management s activities in managing credit, market, liquidity, operational, legal and other risk and to ensure that the integrated risk management functions within the Bank is in place and effectively discharged. 14

17 DIRECTORS' REPORT (CONTINUED) CORPORATE GOVERNANCE STATEMENT (CONTINUED) INFORMATION ON COMMITTEES OF THE BANK (CONTINUED) 2. Board Risk Committee (continued) (d) Roles and responsibilities The BRC shall be responsible for: (i) (ii) (iii) (iv) reviewing and recommending risk management strategies, policies and risk tolerance for board s approval; reviewing and assessing adequacy of risk management policies and framework in identifying, measuring, monitoring and controlling risk and to the extent to which these are operating effectively; ensuring infrastructure, resources and systems are in place for risk management that is, enduring that the staff responsible for implementing risk management systems perform those duties independently of the bank s risk taking activities; and reviewing management s periodic reports on risk exposure, risk portfolio composition and risk management activities. 3. Board Nominating Committee (a) Membership and Attendance Board Nominating Committee ( BNC ) comprises the following members and details of attendance of each member at the BNC meetings held during 2011 are as follows: Composition of Board Nominating Committee Datuk Ter Leong Yap Chairman/Independent Non-Executive Director Tan Siak Tee Member/Independent Non-Executive Director Du Chaohua Member/Non-Independent Non-Executive Director Gao Xingmao Member/Non-Independent Non-Executive Director Number of BNC Meetings Held Attended

18 DIRECTORS' REPORT (CONTINUED) CORPORATE GOVERNANCE STATEMENT (CONTINUED) INFORMATION ON COMMITTEES OF THE BANK (CONTINUED) 3. Board Nominating Committee (continued) (b) Composition The BNC shall consists of a minimum of five (5) members. At least four (4) is nonexecutive directors. The committee is chaired by an independent director. In order to avoid conflict of interest, a member of the committee shall abstain from participating in discussions and decisions on matters involving him. Meeting to be held as and when required and the full committee meets at least once a year. The quorum shall consist of a least three (3) persons comprising any of the Committee Chairman and Members. (c) Objective The objective of the committee is to provide a formal transparent procedure for the appointment of directors and CEO as well as assessment of effectiveness of individual directors, board as a whole and performance of CEO and key senior management officers. (d) Roles and responsibilities The BNC shall be responsible for : (i) (ii) (iii) (iv) (v) (vi) establishing the minimum requirements on the skills, knowledge, experience, qualifications and other core competencies of a Director and the CEO; assessing and recommending to the Board the nominees for appointment of Director, Board Committee member and CEO; assessing and recommending to the Board, the re-appointment of Director/CEO upon expiry of their respective terms of appointment as approved by BNM; assist the Board in indentifying and reviewing, on an annual basis, the required mix of skills, experience and core competencies within the Board; overseeing the overall composition of the board, in terms of the appropriate size and skills, and the balance between executive director, non-executive directors and independent director through annual review; recommending to the board the removal of a director or CEO from the board or management if the director or CEO is ineffective, errant and negligent in discharging his responsibilities; 16

19 DIRECTORS' REPORT (CONTINUED) CORPORATE GOVERNANCE STATEMENT (CONTINUED) INFORMATION ON COMMITTEES OF THE BANK (CONTINUED) 3. Board Nominating Committee (continued) (d) Roles and responsibilities (continued) (vii) (viii) (ix) (x) (xi) establishing a mechanism for the formal assessment on the effectiveness of the board as a whole and the contribution of each director to the effectiveness of the board, the contribution of the board s various committees and the performance of the CEO. Annual assessment is conducted based on objective performance criteria. Such performance criteria is approved by the full board; ensuring that all directors receive an appropriate continuous training programme in order to keep abreast with the least developments in the industry; overseeing the appointment, management succession planning and performance evaluation of key senior management officers; recommending to the board the removal of key senior management officers if they are ineffective, errant and negligent in discharging their responsibilities; and assessing on an annual basis, to ensure that the directors and key senior management officers are not disqualified under Section 56 of the Banking and Financial Institutions Act 1989 (BAFIA). 17

20 DIRECTORS' REPORT (CONTINUED) CORPORATE GOVERNANCE STATEMENT (CONTINUED) INFORMATION ON COMMITTEES OF THE BANK (CONTINUED) 4. Board Remuneration Committee (a) Membership and Attendance Board Remuneration Committee ( BRC ) comprises the following members and details of attendance of each member at the BRC meetings held during 2011 are as follows: Composition of Board Remuneration Committee Datuk Ter Leong Yap Chairman/Independent Non-Executive Director Du Chaohua Member/Non-Independent Non-Executive Director Gao Xingmao Member/Non-Independent Non-Executive Director Tan Siak Tee Member/Independent Non-Executive Director Number of Meetings Held Attended (b) Composition The Board Remuneration Committee ( BRC ) comprises of at least 3 members of non-executive directors and chaired by an independent director. In order to avoid conflict of interest, a member of the committee is to abstain from participating in discussions and decisions on matters involving him. The full committee meets at least once a year to review the remuneration packages of the directors, CEOs and key senior management officers. (c) Objectives The objective of the BRC is to provide a formal and transparent procedure for developing remuneration policy for directors, Chief Executive Officer, and key senior management officers (which includes Deputy Chief Executive Officer and Assistant Chief Executive Officer) and to ensure that compensation is competitive and consistent with the Bank culture, objectives and strategy. 18

21 DIRECTORS' REPORT (CONTINUED) CORPORATE GOVERNANCE STATEMENT (CONTINUED) INFORMATION ON COMMITTEES OF THE BANK (CONTINUED) 4. Board Remuneration Committee (continued) (d) Roles and Responsibilities The BRC is responsible for : (i) (ii) (iii) (iv) recommending a framework and developing a clear policy of remuneration for directors, CEO and key senior management officers for the full Board s approval; determining the balance of remuneration package, which should be sufficient to attract and retain directors of caliber, and yet not excessive to the extent the Bank s funds are used to subsidise the excessive remuneration package. The framework covers all aspects of remuneration such as the remuneration and employment conditions of the industry including director s fees, salaries, allowances, bonuses, share options, benefits-in-kind ( BIK ) and termination benefits; recommending specific remuneration packages for the CEO and key senior management officers; details of the remuneration (including benefits-in-kind) of the individual directors, CEO and key senior management officers are submitted together with the submission of the annual financial reports of the Bank to BNM. 19

22 DIRECTORS' REPORT (CONTINUED) AUDITORS The auditors, PricewaterhouseCoopers, have expressed their willingness to continue in office. In accordance with a resolution of the Board of Directors dated 7 June TAN SIAK TEE DIRECTOR DATUK TER LEONG YAP DIRECTOR Kuala Lumpur 7 June

23 STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 2011 ASSETS Group Bank Note RM 000 RM 000 RM 000 RM 000 Cash and short-term funds 2 1,206,298 1,173,318 1,206,248 1,173,316 Deposits and placements with banks and other financial institutions 3 223, ,286 - Held-to-maturity securities 4 40,413 40,225 40,413 40,225 Loans and advances 5 1,440, ,863 1,440, ,863 Other assets 6 13,121 24,984 12,657 24,484 Deferred tax assets 7 6,965 5,557 6,939 5,557 Statutory deposits with Bank Negara Malaysia 8 17,700 2,100 17,700 2,100 Investment in subsidiary ,000 1,000 Property and equipment 10 7,388 8,063 6,311 6,715 Intangible assets TOTAL ASSETS 2,956,004 2,198,162 2,955,383 2,197,303 LIABILITIES AND EQUITY Deposits from customers 12 1,518, ,682 1,525, ,114 Deposits and placements of banks and other financial institutions , , , ,417 Other liabilities 14 35,484 54,617 34,373 52,859 Provision for taxation 1,532 1,946 1,367 1,626 Deferred tax liabilities TOTAL LIABILITIES 2,542,982 1,812,689 2,548,416 1,818,016 Financed by: Share capital , , , ,000 Reserves ,022 81, ,967 75,287 TOTAL EQUITY 413, , , ,287 TOTAL LIABILITIES AND EQUITY 2,956,004 2,198,162 2,955,383 2,197,303 COMMITMENTS AND CONTINGENCIES 27 1,063,345 1,428,641 1,063,345 1,428,641 21

24 STATEMENTS OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 Group Bank Note RM 000 RM 000 RM 000 RM 000 Interest income 17 85,728 46,051 85,728 46,051 Interest expense 18 (47,313) (19,614) (47,313) (19,614) Net interest income 38,415 26,437 38,415 26,437 Other operating income 19 33,522 32,792 28,269 20,821 Other operating expenses 20 (31,497) (27,363) (28,177) (24,322) Operating profit 40,440 31,866 38,507 22,936 Allowance for impairment on loans and advances 22 (3,882) (24) (3,882) (24) Profit before taxation 36,558 31,842 34,625 22,912 Taxation 23 (9,009) (9,970) (6,945) (7,665) Total comprehensive income for the financial year 27,549 21,872 27,680 15,247 Earnings per share - basic/fully diluted (sen)

25 STATEMENTS OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 Group Issued and fully paid ordinary shares of Non- RM1 each distributable Distributable Nominal Statutory Retained value reserves profits Total RM 000 RM 000 RM 000 RM 000 At 1 January ,000 58,378 23, ,473 Profit for the financial year ,549 27,549 Total comprehensive income for the year ,549 27,549 Transfer to statutory reserve - 13,840 (13,840) - At 31 December ,000 72,218 36, ,022 Group At 1 January ,000 50,754 8, ,601 Profit for the financial year ,872 21,872 Total comprehensive income for the year ,872 21,872 Transfer to statutory reserve - 7,624 (7,624) - At 31 December ,000 58,378 23, ,473 23

26 STATEMENT OF CHANGES IN EQUITY Bank Issued and fully paid ordinary shares of Non- RM1 each distributable Distributable Nominal Statutory Retained value reserves profits Total RM 000 RM 000 RM 000 RM 000 At 1 January ,000 58,378 16, ,287 Profit for the financial year ,680 27,680 Total comprehensive income for the year ,680 27,680 Transfer to statutory reserve - 13,840 (13,840) - At 31 December ,000 72,218 30, ,967 Bank At 1 January ,000 50,754 9, ,040 Profit for the financial year ,247 15,247 Total comprehensive income for the year ,247 15,247 Transfer to statutory reserve - 7,624 (7,624) - At 31 December ,000 58,378 16, ,287 24

27 STATEMENTS OF CASH FLOW FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 CASH FLOWS FROM OPERATING ACTIVITIES Group Bank Note RM 000 RM 000 RM 000 RM 000 Profit before taxation 36,558 31,842 34,625 22,912 Adjustments for: Depreciation of property and equipment 1,527 1,315 1,315 1,077 Amortisation of intangible assets Gain on disposal of property and equipment (30) - (30) - Amortisation of premium less accretion of discount (42) (129) (42) (129) Allowance for impairment on loans and advances 3, , Interest income from held-to-maturity securities (1,220) (1,502) (1,220) (1,502) Unrealised foreign exchange gain (140) (1,146) (140) (1,146) Property and equipment written off Dividend Income - - (6,100) - Operating profit before changes in operating assets and liabilities 40,596 30,823 32,331 21,651 (INCREASE)/DECREASE IN OPERATING ASSETS Deposits and placements with banks and other financial institutions (223,286) 30,098 (223,286) 30,098 Loans and advances (500,843) (239,312) (500,843) (239,312) Other assets 11,372 (21,517) 11,326 (21,338) Amount due from a subsidiary Statutory deposits with Bank Negara Malaysia (15,600) (2,100) (15,600) (2,100) INCREASE/(DECREASE) IN OPERATING LIABILITIES Deposits from customers 703, , , ,521 Deposits and placements of banks and other financial institutions 46, ,055 46, ,055 Bills and acceptances payable - (2,096) - (2,096) Other liabilities (19,133) 35,763 (18,486) 34,443 Cash generated from operating activities 42, ,244 34, ,603 Tax paid (10,858) (8,910) (8,586) (6,906) Net cash generated from operating activities 32, ,334 26, ,697 25

28 STATEMENTS OF CASH FLOW CASH FLOWS FROM INVESTING ACTIVITIES Group Bank Note RM 000 RM 000 RM 000 RM 000 Dividend income received from subsidiary - - 6,100 - Purchase of property and equipment (878) (3,376) (912) (2,740) Purchase of intangible assets (1) (9) (1) (9) Proceeds from disposal of property and equipment Interest received on held-to-maturity securities 1,074 1,502 1,074 1,502 Net cash generated from/(used in) investing activities 225 (1,883) 6,291 (1,247) NET INCREASE IN CASH AND CASH EQUIVALENTS DURING THE FINANCIAL YEAR 32, ,451 32, ,450 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE FINANCIAL YEAR 1,172, ,721 1,172, ,720 CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL YEAR 2 1,204,512 1,172,172 1,204,462 1,172,170 26

29 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2011 The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the financial statements. A BASIS OF PREPARATION The financial statements of the Group and the Bank have been prepared in accordance with the Financial Reporting Standards ( FRS ), the Malaysian Accounting Standards Board ( MASB ) approved accounting standards in Malaysia for Entities Other than Private Entities, together with directives and guidelines issued by Bank Negara Malaysia ( BNM ) and comply with the provisions of the Companies Act, The financial statements of the Group and the Bank have been prepared under the historical cost convention, unless otherwise indicated in this summary of significant accounting policies. The preparation of financial statements in conformity with Financial Reporting Standards requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. It also requires Directors to exercise their judgment in the process of applying the Group s and the Bank s accounting policies. Although these estimates and judgment are based on the Directors best knowledge of current events and actions, actual results may differ from those estimates. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 33. (a) Standards, amendments to published standards and interpretations that are applicable to the Group and the Bank The new accounting standards, amendments and improvements to published standards and interpretations that are effective for the Group and the Bank for the financial year beginning on or after 1 January 2011 are as follows: Revised FRS1 First-time Adoption of Financial Reporting Standards Revised FRS3 Business Combinations Revised FRS127 Consolidated and separate financial statements Amendment to FRS 7 Financial instruments: Disclosures improving disclosures about financial instruments Amendments to FRS1 First-time adoption of financial reporting standards Amendments to FRS132 Financial instruments: Presentation-Classification of right issues IC Interpretation 4 Determining whether an arrangement contains a lease Improvements to FRSs (2010) The adoption of the new accounting standards, amendments and improvements to published standards and interpretations do not have material impact on the financial statements of the Group and the Bank. 27

30 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A BASIS OF PREPARATION (CONTINUED) (b) Standards, amendments to published standards and interpretations to existing standards that are applicable to the Group and the Bank but not yet effective In the next financial year, the Group and the Bank will be adopting the new IFRScompliant framework, Malaysian Financial Reporting Standards ( MFRS ). In adopting the new framework, the Group and the Bank will be applying MFRS1 First-time adoption of MFRS. MFRS 1 First-time adoption of MFRS provides for certain optional exemptions and certain mandatory exceptions for first-time MFRS adopters. (i) Financial year beginning on/after 1 January 2012 MFRS 139 Financial instruments: recognition and measurement - Bank Negara Malaysia has removed the transitional provision for banking institutions on loan impairment assessment and provisioning to comply with the MFRS 139 requirements. The revised MFRS 124 Related party disclosures (effective from 1 January 2012) removes the exemption to disclose transactions between government-related entities and the government, and all other government-related entities. The following new disclosures are now required for government related entities: - The name of the government and the nature of their relationship; - The nature and amount of each individually significant transactions; and - The extent of any collectively significant transactions, qualitatively or quantitatively. Amendment to MFRS 112 Income taxes (effective from 1 January 2012) introduces an exception to the existing principle for the measurement of deferred tax assets or liabilities arising on investment property measured at fair value. MFRS112 currently requires an entity to measure the deferred tax relating to an asset depending on whether the entity expects to recover the subjective to assess whether recovery will be through use or through sale when the asset is measured using the fair value model in MFRS140 Investment property. As a result of the amendments, IC interpretation 121 Income taxes-recovery of revalued nondepreciable assets will no longer apply to investment properties carried at fair value. The amendments also incorporate into MFRS112 the remaining guidance previously contained in IC Interpretation 121 which is withdrawn. Amendment to MFRS 1 First time adoption on fixed dates and hyperinflation (effective from 1 January 2012) includes two changes to MFRS 1. The first replaces references to a fixed date of 1 January 2004 with the date of transition to MFRSs, thus eliminating the need for entities adopting MFRSs for the first time to restate de-recognition transactions that occurred before the date of transition to MFRSs. The second amendment provides guidance on how an entity should resume presenting financial statements in accordance with MFRSs after a period when the entity was unable to comply with MFRSs because its functional currency was subject to severe hyperinflation. 28

31 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A BASIS OF PREPARATION (CONTINUED) (b) Standards, amendments to published standards and interpretations to existing standards that are applicable to the Group and the Bank but not yet effective (continued) (i) Financial year beginning on/after 1 January 2012 (continued) Amendment to MFRS 7 Financial instruments: Disclosures on transfers of financial assets (effective from 1 January 2012) promotes transparency in the reporting of transfer transactions and improve users understanding of the risk exposures relating to transfers of financial assets and the effect of those risks on an entity s financial position, particularly those involving securitisation of financial assets. (ii) Financial year beginning on/after 1 January 2013 MFRS 9 Financial instruments classification and measurement of financial assets and financial liabilities (effective from 1 January 2013) replaces the multiple classification and measurement models in MFRS 139 with a single model that has only two classification categories: amortised cost and fair value. The basis of classification depends on the entity s business model for managing the financial assets and the contractual cash flow characteristics of the financial asset. The accounting and presentation for financial liabilities and for de-recognising financial instruments has been relocated from MFRS 139, without change, except for financial liabilities that are designated at fair value through profit or loss ( FVTPL ). Entities with financial liabilities designated at FVTPL recognise changes in the fair value due to changes in the liability s credit risk directly in other comprehensive income ( OCI ). There is no subsequent recycling of the amounts in OCI to profit or loss, but accumulated gains or losses may be transferred with equity. The guidance in MFRS 139 on impairment of financial assets and hedge accounting continues to apply. MFRS 10 Consolidated financial statements (effective from 1 January 2013) changes the definition of control. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. It establishes control as the basis for determining which entities are consolidated in the consolidated financial statements and sets out the accounting requirements for the preparation of consolidated financial statements. It replaces all the guidance on control and consolidation in MFRS127 Consolidated and separate financial statements and IC Interpretation 112 Consolidation-special purpose entities. 29